World Bank: China is now #1

Here’s what I said in 2012:

Each year I have done a post discussing the issue of when China will have the world’s largest economy.  Lester Thurow says it won’t be until the 22nd century; I say it may have already happened.

Just to be clear, there is no “fact of the matter,” just as there is no fact of the matter as to whether China or the US is larger in terms of square miles.  It’s what my students would call “merely a matter of opinion.”

And in 2009:

I think the best way to approach this issue is to use Rorty’s maxim “truth is what your colleagues let you get away with.”  Truth is socially constructed.  So imagine a timeline with a bell-shaped distribution above it.  The distribution shows the point in time when each economist thinks China has surpassed the US.  At the left end in 2010 is me, a China booster who (shamelessly) wants to get credit for being first to notice that America’s more than 100 year reign as number one is over.  The mode occurs when the World Bank says that China has achieved what Italians call “Il Sorpasso.”  And at the far right of the distribution, well into the 22nd century is Lester Thurow.  The mode occurs around 2016.  Mark your calendars.

The future is now.  The World Bank has (implicitly) crowned China for the (dubious) honor of having the world’s largest economy.  China declined the honor.

The US has been the global leader since overtaking the UK in 1872. Most economists previously thought China would pull ahead in 2019.

The figures, compiled by the International Comparison Program hosted by the World Bank, are the most authoritative estimates of what money can buy in different countries and are used by most public and private sector organisations, such as the International Monetary Fund. This is the first time they have been updated since 2005.

.  .  .

In 2005, the ICP thought China’s economy was less than half the size of the US, accounting for only 43 per cent of America’s total. Because of the new methodology – and the fact that China’s economy has grown much more quickly – the research placed China’s GDP at 87 per cent of the US in 2011.

.  .  .

With the IMF expecting China’s economy to have grown 24 per cent between 2011 and 2014 while the US is expected to expand only 7.6 per cent, China is likely to overtake the US this year.

The figures revolutionise the picture of the world’s economic landscape, boosting the importance of large middle-income countries. India becomes the third-largest economy having previously been in tenth place. The size of its economy almost doubled from 19 per cent of the US in 2005 to 37 per cent in 2011.

The India figures are also interesting, as in the second link above I suggest that India will have the world’s largest economy within 100 years (later I said 50 years.)

When I first read Lester Thurow saying China wouldn’t be number one until the 22nd century, I recalled his earlier praise of Japan (which I thought was wildly excessive.)  Now he was far too pessimistic about another rising Asian power.  I wonder what his views are on India?

Just to head off some tiresome comments:

1.  Yes, there is a big difference between total GDP and GDP per capita.  One matters more for things like impact on commodity markets and carbon emissions, the other matters more for the location of industries like Silicon Valley and Wall Street, or military prowess.  Germany has a bigger GDP that Switzerland, whereas Switzerland has the higher per capita GDP.  Both facts are very important, but in completely different ways.

2.  China is neither a big success story nor a big failure.  It’s a huge country gradually shifting from catastrophically bad public policy to mediocre policy.  It’s a work in progress.

3.  All generalizations about China are wrong.  Well, . . . all but one.

Lessons?  I need to be bolder in my predictions.  I thought the 2016 forecast was getting out way ahead of the curve.  But the World Bank surprised me.  Kudos to that organization for making a sensible PPP comparison.  

Don’t feel bad Americans!  You were the biggest for 142 straight years.  Now you can gradually settle into playing the sort of role Greece played to Rome, or Great Britain to the US.  Soon the rest of the world will be taking potshots at China, and ignoring the US.  Anonymity can be sweet.  When was the last time terrorists went after New Zealand?

After all, why do you think China declined the honor?


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72 Responses to “World Bank: China is now #1”

  1. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    1. May 2014 at 07:34

    Another victory for Obama.

  2. Gravatar of Frank K Frank K
    1. May 2014 at 07:37

    Article II person controls the entire economy!

  3. Gravatar of Blaise Blaise
    1. May 2014 at 07:57

    The last terrorist attack in New Zealand dates from 1985 when the French secret service sunk the Rainbow Warrior killing one Greenpeace member.

  4. Gravatar of Dilip Dilip
    1. May 2014 at 08:11

    “When was the last time terrorists went after New Zealand?”

    I am not sure you want to leave this comment. Its kinda incendiary in a subdued way. If you agree feel free to delete *this* comment and your quoted reference.

  5. Gravatar of Edward Edward
    1. May 2014 at 08:11

    I do feel bad Scott. THIS IS SO EFFING DEPRESSING. and nightmarish . At least with the rise of the US relative to the decline if the British Empire, it was one liberal hegemon handing the reigns if power to another liberal hegemon. China is still an illiberal country, and deeply so. An international order shaped by China would be more friendly towards dictatorships and tyrannies. It’s a dystopian future :-(

  6. Gravatar of Daniel Daniel
    1. May 2014 at 08:28

    Yeah Edward, because all the coups and political assassinations and propped-up dictators were all done in the name of advancing “liberalism”.

  7. Gravatar of Robert Simmons Robert Simmons
    1. May 2014 at 08:28

    I still don’t see the logic of using PPP for a country’s GDP. For per capita comparisons, yes. For the overall economy I don’t see that it tells us anything important.

  8. Gravatar of Edward Edward
    1. May 2014 at 08:38

    Daniel,
    Your anti Americanism notwithstanding, I believe the US has been on balance a force for good

  9. Gravatar of Charlie Charlie
    1. May 2014 at 08:39

    Same question as Robert Simmons. What do you say to this WSJ quote that Tyler posted:

    “China can’t buy missiles and ships and iPhones and German cars in PPP currency. They have to pay at prevailing exchange rates. That’s why exchange rate valuations are seen as more important when comparing the power of nations.”

    Standard GDP measures take these exchange factors into account. And here, China is doing about as well as one would expect. They’re still the world’s second-largest economy, but their GDP is less than half the size of the U.S. GDP”
    - See more at: http://marginalrevolution.com/#sthash.SI83bNEv.dpuf

    For the ways you want aggregate GDP to be important, is relative PPP the right way to measure it?

  10. Gravatar of ChargerCarl ChargerCarl
    1. May 2014 at 09:16

    We can still come out ahead if we let every chinese person who wants to live here come. Not only would we be massively expanding our productive capacity but we would be redistributing it from them to us.

  11. Gravatar of Morgan Warstler Morgan Warstler
    1. May 2014 at 09:17

    Question for econos: I often talk about the PPP brought about by GI/CYB. I’m not sure thats the right phrase.

    By not forcing people to work very far from home to get GI, this increases supply of super cheap low cost labor wherever there are lots of poor people.

    The GI check is still the same. So it buys more. My basic napkin math calculations based on % of labor cost in final pricing across many basic services, at a $2-3 hr wage, increases consumption value of the GI by 30%+.

    Is PPP the right economic term? It’s just “cost of living” but I like PPP more, am I using it right?

  12. Gravatar of TallDave TallDave
    1. May 2014 at 09:24

    Still betting Mexican 2038 PPP GDP per capita will be higher though.

    O/T: Finally. http://freebeacon.com/blog/this-one-chart-explains-everything-you-need-to-know-about-income-inequality/

  13. Gravatar of Mark A. Sadowski Mark A. Sadowski
    1. May 2014 at 09:54

    “The US has been the global leader since overtaking the UK in 1872.”

    While it’s true that the U.S. surpassed the U.K. in 1872, according to the Angus Maddison database China had the world’s largest economy until it was overtaken by the U.S. in 1890.

    http://www.ggdc.net/maddison/maddison-project/home.htm

    In fact prior to the 1890 China and India exclusively traded places as the world’s largest economy in terms of PPP adjusted RGDP. Together these two countries alone accounted for roughly half of global GDP through about 1820.

    The era of Western GDP dominance is comparatively recent, and is proving to be an anomaly.

  14. Gravatar of mpowell mpowell
    1. May 2014 at 10:02

    Robert Simmons makes a very good point. Why use PPP when we are only interested in total size because of the impact on international trade markets? The only time PPP-adjusted total can matter is maybe in defense spending and it’s impact on international politics but in that category US is still #1…

  15. Gravatar of Edward Edward
    1. May 2014 at 10:17

    Mpowell yes, but China is catching up fast. The reason we’ve been able to sustain our large defense budget was because of the size of our economy. 3 percent of the worlds largest economy is enormous. But if China’s economy grows than it’s military spending grows too even if it’s fixed as a percentage of the Chinese economy.

    A question for you scott. You’ve been remarkably sanguine about the rise of the worlds most powerful tyrannical country. Would a mature superpower threaten Japan over the Senkaku islands? China acts like a spoiled temper tantrum throwing child sometimes when it’s “feelings” are hurt.

  16. Gravatar of TallDave TallDave
    1. May 2014 at 10:19

    Wow, after reading the comments I feel I have to post this. Cheer up kids, China’s still a very poor country with few strategic partners.

    http://en.wikipedia.org/wiki/List_of_countries_by_military_expenditures

  17. Gravatar of TallDave TallDave
    1. May 2014 at 10:26

    Here’s the really relevant numbers:

    The combined defense expenditures of all NATO nations in 2013 amounted to $1.02 trillion. This figure includes research and development expenditures related to purchase of major equipment and pensions. By comparison, the total of military budgets for all countries in the world was $1.745 trillion in 2012, according to the Stockholm International Peace Research Institute in Sweden. In 2012, China’s expenditures amounted to $166 billion and Russia’s were $90 billion. Iran trailed with just under $7 billion, according to SIPRI.

    Of course none of this is ever likely to matter much, because China isn’t very expansionist. They might storm Taiwan someday but no one sees them going into South Korea (now becoming the richest country in Asia). Meanwhile they’re steadily adopting Christian institutions and trading with everyone. I see no threat there, in fact I would not be surprised if some of the superstates like the U.S., U.K., Canada, etc began dissolving into smaller self-governing units because there’s little downside now.

    So I for one welcome our new Chinese economic overlords.

  18. Gravatar of ssumner ssumner
    1. May 2014 at 11:52

    Thanks Blaise.

    Dilip, Can you be more specific?

    Edward, Don’t worry, China has no plans to shape the “international order.”

    Charlie, Not quite sure what the ability to buy iPhones and German cars has to do with the “power of nations.” Why not the ability to buy copper? But then I’m not quite sure what the power of nations even means. As I said in the post, the comparison is not useful for military power. But then military power is increasingly irrelevant in the modern world.

    Morgan, It would make PP slightly more equal, but still not completely equal.

    TallDave, Fortunately we won’t have to wait until 2038 to prove you wrong. :)

    Thanks Mark, I thought that 1872 figure seemed a bit fishy.

    mpowell, You said;

    “Robert Simmons makes a very good point. Why use PPP when we are only interested in total size because of the impact on international trade markets?”

    Who is “we?” I’m interested in lots of things other than international trade—such as commodity prices and carbon emissions and global utility.

    Edward, You said;

    “A question for you scott. You’ve been remarkably sanguine about the rise of the worlds most powerful tyrannical country. Would a mature superpower threaten Japan over the Senkaku islands? China acts like a spoiled temper tantrum throwing child sometimes when it’s “feelings” are hurt.”

    I don’t think it makes much sense to describe countries as “mature,” but I get your point. And isn’t Russia more “powerful?” And weren’t Japanese “feelings” hurt by the loss of meaningless islands to the Russians?

    I’m not too concerned over a couple meaningless rocks in the South China Sea. If that sort of thing concerns you, I’d be much more worried about the Ukraine. China has no claim over significant non-Chinese territory tha tit doesn’t currently control (recall that even Taiwan accepts the fact that the island of Taiwan is “part of China.”)

    The reason the rise of China is good is that countries become much more “mature” (as you put it) as they become richer. A good example is . . . China itself, which is much more mature than in previous decades. So if you you hope for a less tyrannical China, you should root for Chinese economic growth (and North Korean economic growth.)

    Talldave, You said;

    “Wow, after reading the comments I feel I have to post this. Cheer up kids, China’s still a very poor country with few strategic partners.”

    I’m going to assume you are joking. Only a truly sick and twisted mind would be “cheered up” by China’s poverty.

  19. Gravatar of ssumner ssumner
    1. May 2014 at 11:53

    Talldave, I agree with your subsequent comment.

  20. Gravatar of TallDave TallDave
    1. May 2014 at 12:48

    True enough Scott, I only meant “cheer up” in the context of the spectre of Chinese military dominance.

  21. Gravatar of mpowell mpowell
    1. May 2014 at 13:22


    Who is “we?” I’m interested in lots of things other than international trade—such as commodity prices and carbon emissions and global utility.

    How are commodity price influences better understood through PPP-adjusted figures? That’s exactly where buying power on a direct exchange basis makes the most sense. Carbon emissions are also linked to commodities, but they could also be related to the delivery ability of local markets, I just don’t think that’s a big part of it. I don’t really know what you mean by global utility but surely that is a per capita type of issue?

    You can deny the existence of truth here, but that doesn’t lead to an interesting discussion. I don’t think you’ve given much explanation for why PPP-adjusted is an interesting way to measure a nation’s total economy.

  22. Gravatar of Robert Simmons Robert Simmons
    1. May 2014 at 13:47

    I’m fully willing to admit you might be right to use PPP in this way, but I still don’t see you or anyone else defending it at all in a way that’s convincing. [Gratuitous half-insult deleted]

  23. Gravatar of Mark A. Sadowski Mark A. Sadowski
    1. May 2014 at 15:55

    Scott,
    Off Topic.

    Christian Odendahl gives some reasons why he doesn’t think QE will work in the Euro Area.

    http://www.cer.org.uk/insights/quantitative-easing-alone-will-not-do-trick

    April 28, 2014

    Quantitative easing alone will not do the trick
    By Christian Odendahl

    “…With these two approaches in mind, the ‘tools view’ and the ‘expectations view’, it is worth assessing the potential for QE to revive the eurozone economy, and hence, inflation. Starting with the tools view, there are several channels of transmission of QE.

    *Lower long-term market interest rates could boost (larger) firms’ investment. But European firms raise finance predominantly from banks, not capital markets where the impact of QE would be directly felt. QE will therefore affect firms’ financing costs less than in the US, where capital markets are more important and where QE has effectively reduced long-term rates for firms…”

    Odendahl is referring to the fact that U.S. nonfinancial corporations raise a lot more of the money they borrow in the bond markets than from banks. To see just how different look at Chart 3 on Page 2:

    http://www.boj.or.jp/en/statistics/sj/sjhiq.pdf

    Note that the credit market liabilities of U.S. nonfinancial corporations is 75% bonds and 25% loans. In contrast, in the Euro Area it is 11.4% bonds and 88.6% loans.

    But I think he gets the causality backwards in a couple of respects.

    My own estimates show for example that from 1993Q1 through 2013Q2 U.S. private nonresidential fixed investment (PNFI) Granger causes business sector loans and securities at the 5% significance level, and commercial bank loans and leases Granger causes PNFI and private residential fixed investment (PRFI) at the 5% significance level each. They also show that PNFI and PRFI Granger cause real interest rates and the impulse response of real interest rates to investment is *positive*.

    Chrisian Odendahl:
    “…*Property and other assets are also part of households’ wealth: QE would push up the prices of such assets, and households could thus consume more and save less (the so-called ‘wealth effect’). However, the evidence on the size of this effect is mixed. According to an ECB paper, housing wealth does not seem to have much of an impact on consumption in the eurozone at all; financial wealth has a larger impact but it is still lower than in the US where households often own stocks and property for their pensions…”

    Here he’s referring to the fact that U.S. households hold a larger proportion of financial assets in the form of shares and equities that Euro Area households and that U.S. pension funds hold a larger proportion of their liabilities in shares and equities than Euro Area pension funds.

    If you look at Chart 2 in the same link I provided previously you’ll note that 33.7% of financial assets held by U.S. households are in the form of shares and equities. For Euro Area households the equivalent figure is 16.4%. The same chart shows that 31.1% of U.S. household financial assets are in the form of life insurance and pension fund reserves. For the Euro Area the equivalent figure is 31.8%.

    The Federal Reserve Flow of Funds shows that 30.7% of the financial assets held by U.S. insurance and pension funds are in the form of shares and equities. In contrast the ECB Flow of Funds shows that the equivalent figure for the Euro Area is only 11.4%.

    But according to the OECD:

    http://stats.oecd.org/index.aspx?queryid=84#

    Euro Area share prices are still down 26.8% from their previous peak in June 2007, nearly seven years ago. In contrast U.S. share prices are at record levels. One can’t help wondering if this has something to do with this fact.

    (continued)

  24. Gravatar of benjamin cole benjamin cole
    1. May 2014 at 16:39

    Interesting post. China consumes more industrial commodities than the USA (oil excepted) so it is already a bigger economy in many regards. I share concerns about China due to the complete lack of freedom of expression in China. It speaks to a terribly limited perspective.

  25. Gravatar of Mark A. Sadowski Mark A. Sadowski
    1. May 2014 at 16:56

    (continued)

    Christian Odendahl:
    “…*For households and investors, lower interest rates would make buying property more attractive. A rise in property prices usually stimulates the economy via construction and real estate services; the UK knows a thing or two about that. In the eurozone, however, a property-led boost to the economy is unlikely to be large. Spain and Ireland just came out of property bubbles and are healing only slowly; others, including core countries like the Netherlands, are struggling with falling prices whereas prices in France are already at very high levels and bound to fall. A slight boost in these countries means softening the hit, not driving a recovery. In Germany, the effect could be stronger but rising prices (and hence rents) would depress the consumption of the more than 50 per cent of Germans who rent. The effects of QE on the property market are therefore likely to be weaker in the eurozone than in the US or the UK…”

    It might be useful to look at the European Commission House Price Index for selected quarters for these countries:

    http://appsso.eurostat.ec.europa.eu/nui/show.do?query=BOOKMARK_DS-304230_QID_7CE27795_UID_-3F171EB0&layout=TIME,C,X,0;GEO,L,Y,0;TYPPURCH,L,Z,0;INFOTYPE,L,Z,1;INDICATORS,C,Z,2;&zSelection=DS-304230INDICATORS,OBS_FLAG;DS-304230INFOTYPE,INDEX_Q;DS-304230TYPPURCH,TOTAL;&rankName1=INFOTYPE_1_2_-1_2&rankName2=TYPPURCH_1_2_-1_2&rankName3=INDICATORS_1_2_-1_2&rankName4=TIME_1_0_0_0&rankName5=GEO_1_2_0_1&sortC=ASC_-1_FIRST&rStp=&cStp=&rDCh=&cDCh=&rDM=true&cDM=true&footnes=false&empty=false&wai=false&time_mode=NONE&time_most_recent=false&lang=EN&cfo=%23%23%23%2C%23%23%23.%23%23%23

    Yes, UK house prices are at record levels, but are only 2.1% above their previous peak in 2007Q3. House prices in Ireland are up 9.1% from their recent low in 2013Q1, after falling 50.9% from their pre-recession peak in 2007Q3. Spain, however, can hardly be said to be healing, as prices have been falling steadily since 2007Q3 and are now down 36.7%. In the Netherlands house prices seem to have finally touched bottom after falling 20.5% since their peak in 2008Q3. In France house prices are still falling, and are down 4.4% from their peak in 2011Q3. In Germany house prices perversely have been rising since the recession, and are up by 14.1%.

    However, compare this with some of the harder hit U.S. metropolitan markets. House prices fell by 61.7% from August 2006 to March 2012 in Phoenix, by 55.9% from June 2006 to September 2011 in Las Vegas and by 51.0% from June 2006 to November 2011 in Miami according to the Case-Shiller House Price Index. Since hitting bottom, prices are up by 44.5% in Phoenix, up by 43.8% in Las Vegas and up by 32.0% in Miami. In fact it’s a general pattern that in markets where house prices fell further, they have risen more since hitting bottom, although nothing matches San Francisco, where house prices are up by 58.1% from their post recession low.

    (Incidentally, the population of Miami, at 6.4 million, is over a third greater than the entire country of Ireland, at 4.6 million. So even though these markets are only metropolitan areas, they as large or larger than some of the countries to which they are being compared.)

    More importantly, I think Odendahl gets the causality backwards.

    Granger causality tests show over 1987Q1 that the Shiller national house price index Granger causes NGDP at the 10% significance level, but that NGDP Granger causes the Shiller national house price index at the 1% significance level. So the evidence seems to suggest nominal incomes drive house prices rather than house prices driving nominal incomes.

    I also think his point that over 50% of households rent in Germany is rather unpersuasive. In the largest and second largest metropolitan areas in the U.S., New York and Los Angeles, with 23.4 million and 18.2 million people respectively, 50.0% and 49.9% of households rent.

    So the diversity of Euro Area housing markets that Odendahl alludes to, also exists in the U.S.

  26. Gravatar of Major_Freedom Major_Freedom
    1. May 2014 at 17:30

    I think the best way to approach this issue is to use Rorty’s maxim “truth is what your colleagues let you get away with.” Truth is socially constructed. So imagine a timeline with a bell-shaped distribution above it. The distribution shows the point in time when each economist thinks China has surpassed the US. At the left end in 2010 is me, a China booster who (shamelessly) wants to get credit for being first to notice that America’s more than 100 year reign as number one is over. The mode occurs when the World Bank says that China has achieved what Italians call “Il Sorpasso.” And at the far right of the distribution, well into the 22nd century is Lester Thurow. The mode occurs around 2016. Mark your calendars.

    The future is now.

    It is always amusing to see a self-professed Rortian contradict himself. So now we’re being told that a “socially constructed” truth is what Sumner says, and/or what the World Bank says.

    It’s always like this. Those who deny rationalism as capable of revealing objective truths with a capital T, those who assert truth is subjective, socially constructed, etc, always seem to nevertheless proclaim themselves, or some big powerful institution, like the World Bank, as the source, the center, of these alleged socially constructed truths.

    —————-

    Regarding China:

    If the division of labor economy is expanded to the world, it is only natural that with enough time, those countries with the largest populations will become the “biggest” in terms of output. India will overtake the US at some point, if existing conditions that allow for capital formation, continues.

    But I seriously doubt the numbers the World Bank is reporting. The same exaggerated estimates were made about the former Soviet Union. Some influential western economists during the 1950s and 1960s even proclaimed the USSR as the world’s largest economy. It’s the mystique with highly central planned economies. Then the wall came down and reality was revealed. The USSR was nowhere as wealthy as the consensus. (But the Rortian would have to conclude that the mere revelation of information of what was going on in the USSR, was equivalent to an actual collapse of the USSR economy, since first the consensus was this, and then the consensus was that.)

    I implore the readers here to read Rorty’s work, to see the muddled and flawed foundation of Sumner’s epistemology.

  27. Gravatar of Daniel Daniel
    1. May 2014 at 18:11

    Edwards

    Your anti Americanism

    Despite what Superman said, “the American way” is not on the same level with “truth and justice”.

    Also – people who accuse others of “anti-Americanism”, as if the USA is above criticism, are total morons.

    I believe the US has been on balance a force for good

    You really need to stop swallowing your own propaganda.

  28. Gravatar of rob rob
    1. May 2014 at 21:50

    I have met several non economists in government and academia who like to pretend that China is not a developing country so they can argue that it should be treated like a developed country because their economy is so large(usually a mix of environmentalists and protectionists), that is probably why China wants to decline the honer in my view. Many fail to see the or perhaps merely do not want to see the distinction between GDP and GDP per capita.
    I am really glad to see some realistic PPP numbers for once though.

  29. Gravatar of Lorenzo from Oz Lorenzo from Oz
    2. May 2014 at 04:02

    I was going to make the “China being biggest is normal” point that Mark Sadowski made.

    I will make a more specific twist on that; in the early C19th, likely about a third of the world’s population was in the Qing Empire, producing about a third of world GDP. This is the sort of economic “dominance” that is never likely to come China’s way again.

  30. Gravatar of TallDave TallDave
    2. May 2014 at 10:35

    I believe the US has been on balance a force for good

    The sheep naturally resent the sheepdog’s every nip and bark and growl, but when the wolves show up they all scramble to hide behind their friend.

    Many on the left never forgave America for winning the Cold War.

  31. Gravatar of Lorenzo from Oz Lorenzo from Oz
    2. May 2014 at 13:32

    On the international role of the US, the biggest failing of US policy was remaking the world monetary order by creating the US Federal Reserve and remaking the world state order by its intervention in WWI and the Treaty of Versailles and then stepping back from the responsibility that came with its actions and power. The result was 1929-1945.

    The period since 1945, when the US has taken much more of the responsibility that comes with its relative power. has been much better. Both for the world state order (i.e. general peace) and for the world monetary and economic order. On simple utilitarian grounds, an active US is to be preferred.

    Not that it is a prospect any time soon, but a regime which gave us the Beijing Massacre, the Great Firewall of China, has had border wars with most of its neighbours, ruling a state-culture whose history was of conceiving other states as either tributaries or enemies and whose name for itself translates as “centre of the universe” is not a preferable prospect. As, indeed, almost all the other states in its region agree.

  32. Gravatar of Skepticlawyer » On the US world-role and the economic rise of China Skepticlawyer » On the US world-role and the economic rise of China
    2. May 2014 at 15:45

    […] This is based on comments I made here. […]

  33. Gravatar of ssumner ssumner
    2. May 2014 at 17:01

    TallDave, I thought so.

    mpowell, You are confused on the commodity issue. Commodity consumption is closely related to the physical size of an economy, not the dollar size. Did Japanese commodity consumption fall 25% last year when the yen plunged? Obviously not. Did the Japanese economy get 25% smaller? Obviously not. PPP data is what matters.

    And you said:

    “I don’t really know what you mean by global utility but surely that is a per capita type of issue?”

    No, global utility is a total utility issue, not a per capita issue. That’s why I care much more about events in China than Bhutan.

    Mark, Good points.

    Rob, I agree.

    Lorenzo, I agree about the US’s blunders prior to WWII.

    The name of China in Chinese actually translates as “central country.” (zhong gua) The US translates as “beautiful country.”

  34. Gravatar of Lorenzo from Oz Lorenzo from Oz
    2. May 2014 at 21:07

    “Central country” is the centre of the human universe, surely? :) It is certainly how China has historically seen itself.

    Also, just to clarify, nothing I said means endorsing every twist and turn in US policy. (Though I tend to be more positive/forgiving that many folk, simply because I am very aware of likely alternative scenarios.)

  35. Gravatar of Is China Number One? Is China Number One?
    3. May 2014 at 02:59

    […] Scott Sumner thinks this is a big […]

  36. Gravatar of Daniel Daniel
    3. May 2014 at 03:43

    The sheep naturally resent the sheepdog’s every nip and bark and growl, but when the wolves show up they all scramble to hide behind their friend.

    AMERICA, f*ck yeah

    http://lefunny.net/wp-content/uploads/2012/08/Merica.jpg

  37. Gravatar of Robert Simmons Robert Simmons
    3. May 2014 at 06:10

    “mpowell, You are confused on the commodity issue. Commodity consumption is closely related to the physical size of an economy, not the dollar size. Did Japanese commodity consumption fall 25% last year when the yen plunged? Obviously not. Did the Japanese economy get 25% smaller? Obviously not. PPP data is what matters.”
    I’d look at the growth of the Japanese economy in Yen terms. Translating it into another currency (with either method) to measure growth is like translating an English book to Japanese, then back to English. http://www.youtube.com/watch?v=jMZtdLra24E

  38. Gravatar of TallDave TallDave
    3. May 2014 at 10:51

    Daniel,

    There’s that resentment I mentioned.

    Pining for the Commies, I guess. Sigh.

  39. Gravatar of TallDave TallDave
    3. May 2014 at 11:10

    At least with the rise of the US relative to the decline if the British Empire, it was one liberal hegemon handing the reigns if power to another liberal hegemon. China is still an illiberal country

    China won’t be anything like a hegemon unless they become as rich as we are, and they won’t become as rich as we are unless they liberalize.

    It’s funny, in the 1940s when we instituted liberal democratic institutions for Japan and Germany (and later South Korea), the conventional wisdom was “Prussian militarism” was a hopeless cause, and the Nipponese were worse. But they’re pacificists most of a century later, and most people living in those countries today grew up in the sheltering arms of Pax Americana.

    It will be interesting to see if Japan rearms, or at least establishes a nuclear deterrent. But no one’s really afraid of them anymore, the South Koreans and the Philippines are starting to realize that they may now have more in common with Edo than Peking.

  40. Gravatar of Daniel Daniel
    3. May 2014 at 12:51

    Oh, I don’t resent the US.

    But I have a feeling the Iraqis and the Serbs and the Vietnamese (and many other countries to which the US exported “liberalism”) do.

  41. Gravatar of Daniel Daniel
    3. May 2014 at 12:53

    But I guess you can’t hear me over the sound of freedom.

  42. Gravatar of TallDave TallDave
    3. May 2014 at 17:48

    Ignorance. The Kurdish Iraqis up north still wave U.S. flags and have been begging us for a permanent military base since we showed up; polling during the height of the violence in 2007 found large majorities of Shia and Kurds believed the war was right decision. The Kosovars are certainly happy we showed up to prevent their genocide. The free Vietnamese were so resentful they tried to flee here in canoes.

    The Serbs and the Sunni Baathists and the Nazis and the Communists? Lot of resentment there. Odd group of people to identify with.

    The South Koreans and the people of the Philippines resented us too. They resented the Japanese a hell of a lot more, though. America’s not the Platonic ideal of freedom, but it’s been the least of evils.

  43. Gravatar of Daniel Daniel
    4. May 2014 at 02:52

    I didn’t know the Serbs were sub-human. But now I know, thanks to an American who lives on another continent and only knows what US media spoon-fed him.

    Also – good to know the humanitarian disaster caused by the US in Iraq was justified because the Kurds are better off. Of course, the Kurds are only part of Iraq because the borders were drawn that way by the previous “liberal” hegemon – the Brits.

    Also – the war in Vietnam would not have happened at all had it not been for the US. All the Vietnamese wanted was their independence – which is what they approached the US with (starting in the 1920s, when Ho Chi Minch tried to approach Woodrow Wilson – only to be ignored). Since the West wouldn’t give them any support at all (in fact, quite the opposite), they claimed Communist allegiance, in order to get Soviet backing.

    Which brings us to the Soviets – who only got so far because the US handed them China and Eastern Europe on a plate.

    http://foseti.wordpress.com/2012/08/19/review-of-americas-retreat-from-victory-by-joseph-r-mccarthy/

    And I love it how you spin US atrocities in the Philippines – “yeah, we were bad, but the Japanese WERE EVEN WORSE”.

    I’m starting to think a “liberal” hegemon is actually worse than a non-liberal one – for the same reason a well-meaning politician is worse than a cynical one – you get the deadly combination of smug self-righteousness and domination.

  44. Gravatar of Daniel Daniel
    4. May 2014 at 02:56

    But I guess it’s pointless to argue with a true believer in American imperialism (at least the Brits were open about it). We all know it just has to destroy the village in order to save it.

  45. Gravatar of Daniel Daniel
    4. May 2014 at 03:01

    Also – regarding Kosovo – it was the Albanians who started the violence, and the Serbs were not trying to eradicate them.

    So why did the West decide the Serbs had to be bombed ?
    Because they weren’t a US client perchance ?

    Isn’t that what US “liberalism” is all about ? “Submit or be invaded.”

    You are literally a disgusting human being – smugly self-righteous in the face of contrary evidence.

  46. Gravatar of ssumner ssumner
    4. May 2014 at 06:17

    Robert, You said;

    “I’d look at the growth of the Japanese economy in Yen terms.”

    That’s even worse. In yen terms it’s 30 times larger than the US economy. Believe me, PPP is the only sensible comparison for size of an economy.

  47. Gravatar of AbsoluteZero AbsoluteZero
    4. May 2014 at 08:49

    Scott said: ‘The name of China in Chinese actually translates as “central country.” (zhong gua) The US translates as “beautiful country.”’

    Lorenzo from Oz: ‘“Central country” is the centre of the human universe, surely?’

    Scott, I don’t know if you know Chinese, but I would not translate the first character in 中國 as “central”. While technically not incorrect, it implies centrality or importance, and this often leads to misunderstanding.

    The character 中 by itself can mean the middle, the inside, in the process of, or even hitting a target. By itself it does not connote importance. It is only in combination with other characters that it can mean that.

    For example, 中秋節 is literally “Mid Autumn Festival”. It simply means “middle”, and nothing else.

    It can mean moderation. For example, 中道 is the middle way, or the moderate way.

    It can also mean neutral. 中立 means “neutral”. 中和 means “to neutralize”.

    中心 means the central part, or the focus, and by implication, the most important part. But this is only because of the second character 心, or “heart”. This is exactly like in English when we say something is the heart of the matter.

    By the way, all these examples work in Japanese as well. The pronunciations are different but the meanings are the same.

    Incidentally, the full name of the United States of America in Chinese is 亞美利加合衆国. 合衆国 is the “United States” part. 亞美利加 is the transliteration of America, pronounced something like ah-may-lay-ga. This is shortened to 美国. The second character in the transliteration, 美, is used, which happens to mean pretty or beautiful. The funny thing is, in Japanese, it is 亜米利加合衆国. The characters are the same except for the second (and except for the different style of simplification in the first). The short form is 米国, which literally means “rice country”.

  48. Gravatar of ssumner ssumner
    5. May 2014 at 05:01

    Absolute, Thanks, and indeed I didn’t mean to imply it connoted importance. Rather that China thought of itself as being located in the middle in a geographic sense. But perhaps that’s also wrong.

    Interesting info about America.

  49. Gravatar of Robert Simmons Robert Simmons
    5. May 2014 at 06:56

    “That’s even worse. In yen terms it’s 30 times larger than the US economy. Believe me, PPP is the only sensible comparison for size of an economy.”

    That’s not what I said, and you know it. Wow, my opinion of you has really nose-dived.

  50. Gravatar of TallDave TallDave
    5. May 2014 at 10:30

    The Serbs aren’t subhuman any more than the Nazis were.

    Again, ignorance. Iraq under Saddam was an ongoing “humanitarian disaster.” The average violent death rate of the Saddam era is much higher than the postwar era.

    You might just as well complain that French civilians were killed in the Normandy invasion.

    “All the Vietnamese wanted was their independence” Yeah, the North Koreans, too. Delusions of Communist sympathizers for 100 Alex!

    It’s nice that everyone else wants to run our foreign policy and is sure they can do it better. Price of being the indispensable country, I guess.

  51. Gravatar of TallDave TallDave
    5. May 2014 at 10:37

    “So why did the West decide the Serbs had to be bombed ?”

    Seriously? http://en.wikipedia.org/wiki/Kosovo_War

    And I love it how you spin US atrocities in the Philippines – “yeah, we were bad, but the Japanese WERE EVEN WORSE”.

    Oh dear God the ignorance. Learn a few facts, not wasting any more time on someone that deluded.

  52. Gravatar of ssumner ssumner
    5. May 2014 at 18:29

    Robert, Then I honestly don’t know what you are talking about. Would you measure the size of the Zimbabwe economy in Zimbabwe dollar terms? Obviously not. So what does “in yen terms” even mean? Feel free to explain it to me.

  53. Gravatar of Daniel Daniel
    6. May 2014 at 03:03

    TallDave

    You are a disgusting moron. Not only are you an apologist for the crimes perpetrated by the US government, you do so even when exposed to the truth.

    “We had to destroy the village in order to save it” – that’s the essence of US “liberalism”. What else can you expect from a nation founded by Puritans ?

    The Vietnam war was a war a national liberation. The US opposed this and chose sides in a conflict it did not understand. Disaster ensued.

    Kosovo Albanians made a calculation – terrorize the Serbs, the Serbs would strike back (and, as said before, they were not committing genocide), and the West would take the Albanian side. They understood Western hypocrisy correctly.

    The Serbs aren’t subhuman any more than the Nazis were.

    You are a disgusting idiotic racist.

  54. Gravatar of Daniel Daniel
    6. May 2014 at 03:06

    Oh, and North Korea – you know why it became communist in the first place ?

    Because saint FD Roosevelt wanted it to. China, too. Mao came to power because FDR’s court decide he should.

    You disgusting shameless imbecile.

  55. Gravatar of Daniel Daniel
    6. May 2014 at 03:18

    And speaking of – “let’s terrorize the majority, have them abuse us so we can cry out for Western intervention – so we can gain independence” – that was how the Armenian genocide happened.

    The Armenians terrorized the Turks for more than a decade – until the Turks snapped. Only the West didn’t intervene – and disaster ensued.

    Western liberalism has so much blood on its hands – and yet morons like you have the gall to claim there was no other choice. I guess it’s a comfortable lie when the bloodshed is always somewhere else.

  56. Gravatar of Robert Simmons Robert Simmons
    6. May 2014 at 08:40

    You “Did Japanese commodity consumption fall 25% last year when the yen plunged? Obviously not. Did the Japanese economy get 25% smaller? Obviously not. PPP data is what matters.”
    Me “I’d look at the growth of the Japanese economy in Yen terms.”
    Year-to-year growth in an economy is best measured in that economy’s own unit of account.

  57. Gravatar of ssumner ssumner
    6. May 2014 at 08:50

    Robert, Very simple question. Should the size of economies be compared using market exchange rates or PPP?

    First you said market exchange rates. You are now denying you believe either of those things. So what’s your third hypothesis?

  58. Gravatar of Robert Simmons Robert Simmons
    6. May 2014 at 08:59

    Still misrepresenting me.
    It depends on why we’re comparing, I think. The only reason I see to care if China’s economy is bigger than the US’ is as some sort of economic power measure (or in your case, to be fashionably contrarian). For that measure use market exchange rates.
    If you want to compare living standards, use PPP.
    If you want to know how much an economy grew in the last year, as in your Japan commodities example, don’t use exchange rates at all.
    I could very well be wrong, but the closest I’ve seen you come to an argument for using PPP for a country’s total economy, is “Believe me, PPP is the only sensible comparison for size of an economy.” Which isn’t much of an argument.

  59. Gravatar of ssumner ssumner
    6. May 2014 at 09:31

    Robert, So you use yen for growth rates and don’t use yen for levels. You do realize that’s not consistent, I hope. Growth rates are merely changes in levels. You can’t have it both ways.

    And if PPP is correct for per capita GDP, and if total GDP is per capita times population . . .

    When commenters leave comments that are logically incoherent, it’s a bit silly to be outraged that you are being misinterpreted.

  60. Gravatar of Robert Simmons Robert Simmons
    6. May 2014 at 10:25

    I’d use Yen for levels, for intra-Japan comparisons.
    I’d use PPP for inter-country comparisons of levels of living standards.
    Multiplying total GDP by PPP seems to be like multiplying my height by my weight. Theoretically interesting, but why would anyone care? Is PPP a good leading indicator for future exchange rates?

  61. Gravatar of Robert Simmons Robert Simmons
    7. May 2014 at 06:19

    This is my final comment before I leave this alone.

    “And if PPP is correct for per capita GDP, and if total GDP is per capita times population . . .”

    I don’t accept the first half of that conditional. PPP is good for looking at average living standards, not necessarily for per capita GDP generally. If I want to know the average Chinese citizen’s ability to influence global economic events, I think I’d look at market exchange rates.

  62. Gravatar of ssumner ssumner
    8. May 2014 at 06:01

    Robert, Again, this post was about size of the Chinese economy, not about average Chinese person’s ability to influence the global economy.

    BTW, China does more trade than the US, so their ACTUAL influence on the global economy is larger by one important metric.

    I still don’t understand your point about levels and growth rates, you can’t have it both ways. The two must be consistent. If market rates are right for comparisons in 2012 and they are right for comparisons in 2014 then ipso facto they are right for changes between 2012 and 2014.

  63. Gravatar of Robert Simmons Robert Simmons
    8. May 2014 at 07:49

    I wish I could stop. My patience for others being misconstrued is really low, so imagine how low it is when someone is doing it to me.

    Can you point out where I’ve said something inconsistent? I’m saying to use Yen for intra-Japan comparisons. Whether for levels, growth rates, whatever. Why translate into another currency at all in those situations (which is what you proposed)?

    “this post was about size of the Chinese economy”

    The economy is not a thing, there’s no true size of it. How we measure it should depend on why we’re measuring it. I’ve said when I think we should use PPP and when market exchange rates.

    Honestly, all of your comments to me have a Memento-like feel to them. If I say A, you spin any minor ambiguous wording to have the worst interpretation. If I explain A is because of B, you wonder why I’m talking about B. I explain sometimes B, sometimes C, you again spin my wording without any apparent memory or re-reading of any previous comments.

  64. Gravatar of Major_Freedom Major_Freedom
    8. May 2014 at 08:55

    Robert:

    I’ve had the exact same impression.

  65. Gravatar of ssumner ssumner
    9. May 2014 at 05:46

    Robert, Just answer a simple question—are you claiming that the size of the Japanese economy should be measured at market exchange rates, or not?

    If you are, the Japanese economy was dramatically smaller in 2014 than 2012.

  66. Gravatar of Robert Simmons Robert Simmons
    9. May 2014 at 07:00

    Japan 2014 vs. Japan 2012 would clearly be a purely intra-country comparison. As such, I wouldn’t use any foreign exchange rate, I’d just use Yen. Both nominal and real it’s grown over that period.
    If we’re trying to determine something else, like Japan’s economic importance worldwide, then I think I would use market exchange rates.

  67. Gravatar of ssumner ssumner
    9. May 2014 at 12:24

    Robert, That’s exactly my point, which market exchange rates? 2012 or 2014? It makes a huge difference. Did Japan suddenly become a much less important country in 2014?

  68. Gravatar of Robert Simmons Robert Simmons
    10. May 2014 at 03:43

    Wouldn’t you use a 2012 average rate for 2012 numbers, and a 2014 average rate for 2014 numbers?
    The $ market value of its production dropped quite a bit. Its total wealth in $ terms I believe grew. Not sure what the bottom line conclusion is.

  69. Gravatar of ssumner ssumner
    10. May 2014 at 09:45

    Robert, You said;

    “The $ market value of its production dropped quite a bit.”

    Thus the market value in dollars is a rather unreliable metric, which proves my point. The Japanese economy did not shrink in the sense that most economists would find meaningful.

  70. Gravatar of Robert Simmons Robert Simmons
    10. May 2014 at 13:49

    “Thus the market value in dollars is a rather unreliable metric, which proves my point. The Japanese economy did not shrink in the sense that most economists would find meaningful.”

    When FireEye’s stock dropped by ~25% Tuesday to Wednesday, did we decide that market capitalization was unreliable, that EMH is all wrong? Cap (or EV) isn’t always the best way to look at a company, but alternatives need to be defended to be used.

    If I had to choose one and only one way of measuring a foreign country’s GDP, then I’d use PPP. In that, I’m pretty sure we’re in agreement. I don’t have to just use it, though, I can pick the tool best suited for the job.
    How do living standards compare? PPP per capita.
    How much did it grow last year? Avoid translation errors and use the country’s own currency.
    Total size comparisons of economies seem to only matter for bragging rights and military resource reasons.
    I can see one reason to use PPP and one to use market rates for the total size of an economy, neither realistic. To estimate how much it would cost America to buy all of Japan’s production, use market rates. To estimate how much we’d value it if they gave all their production to us, use PPP. Not exactly practical concerns. I suppose one could argue trade sits about halfway between the two ideas, so we should average them, but not sure about that.

  71. Gravatar of ssumner ssumner
    11. May 2014 at 17:05

    Robert, You started off saying:

    I still don’t see the logic of using PPP for a country’s GDP. For per capita comparisons, yes. For the overall economy I don’t see that it tells us anything important.”

    And now you say:

    “If I had to choose one and only one way of measuring a foreign country’s GDP, then I’d use PPP. In that, I’m pretty sure we’re in agreement.”

    I said from the very beginning that there were things that market exchange rates measured better (such as military power.) Indeed that was in the post. But the PPP measure is the best overall measure, if you had to pick one. You agree. So why did you disagree with me earlier?

  72. Gravatar of Robert Simmons Robert Simmons
    12. May 2014 at 08:48

    That may be what you meant, but I looked again to be certain, and it’s not what you said.
    “Yes, there is a big difference between total GDP and GDP per capita. One matters more for things like impact on commodity markets and carbon emissions, the other matters more for the location of industries like Silicon Valley and Wall Street, or military prowess.”

    If this was all a misunderstanding, then great.

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